Lexecon v. Milberg Weiss Bershad Hynes & Lerach

Decision Date03 March 1998
Docket Number961482
PartiesLEXECON INC. et al., Petitioners v. MILBERG WEISS BERSHAD HYNES & LERACH et al
CourtU.S. Supreme Court
Syllabus*

Petitioners, a law and economics consulting firm and one of its principals (collectively, Lexecon), were defendants in a class action brought against Charles Keating and the American Continental Corporation in connection with the failure of Lincoln Savings and Loan. It and other actions arising out of that failure were transferred for pretrial proceedings to the District of Arizona under 28 U.S.C. §1407(a), which authorizes the Judicial Panel on Multidistrict Litigation to transfer civil actions with common issues of fact "to any district for coordinated or consolidated pretrial proceedings,'' but provides that the Panel "shall'' remand any such action to the original district "at or before the conclusion of such pretrial proceedings.'' Before the pretrial proceedings ended, the plaintiffs and Lexecon reached a "resolution,'' and the claims against Lexecon were dismissed. Subsequently, Lexecon brought this diversity action in the Northern District of Illinois against respondent law firms (hereinafter Milberg and Cotchett), claiming several torts, including defamation, arising from the firms' conduct as counsel for the class action plaintiffs. Milberg and Cotchett moved for, and the Panel ordered, a §1407(a) transfer to the District of Arizona. After the remaining parties to the Lincoln Savings litigation reached a final settlement, Lexecon moved the Arizona District Court to refer the case back to the Panel for remand to the Northern District of Illinois. The law firms filed a countermotion requesting the Arizona District Court to invoke §1404(a) to "transfer'' the case to itself for trial. With only the defamation claim against Milberg remaining after a summary judgment ruling, the court assigned the case to itself for trial and denied Lexecon's motion to request the Panel to remand. The Ninth Circuit then denied Lexecon's petition for mandamus, refusing to vacate the self-assignment order and require remand because Lexecon would have the opportunity to obtain relief from the transfer order on direct appeal. After Milberg won a judgment on the defamation claim, Lexecon again appealed the transfer order. The Ninth Circuit affirmed on the ground that permitting the transferee court to assign a case to itself upon completion of its pretrial work was not only consistent with the statutory language but conducive to efficiency.

Held: A district court conducting pretrial proceedings pursuant to §1407(a) has no authority to invoke §1404(a) to assign a transferred case to itself for trial. Pp. ___-___.

(a) Two sources of ostensible authority for Milberg's espousal of self-assignment authority are that the Panel has explicitly authorized such assignments in Panel Rule 14(b), which it issued in reliance on its rulemaking authority; and that §1407(a)'s limitations on a transferee court's authority to the conduct of "coordinated or consolidated'' proceedings and to "pretrial proceedings'' raise no obvious bar to a transferee's retention of a case under §1404. Beyond this point, however, the textual pointers reverse direction, for §1407 not only authorizes the Panel to transfer for coordinated or consolidated pretrial proceedings, but obligates the Panel to remand any pending case to its originating court when, at the latest, those pretrial proceedings end. The Panel's remand instruction comes in terms of the mandatory "shall,'' which normally creates an obligation impervious to judicial discretion. Anderson v. Yungkau, 329 U.S. 482, 485, 67 S.Ct. 428, 430, 91 L.Ed. 436 (1947). Reading the statute whole, this Court has to give effect to this plain command, see Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 476, 112 S.Ct. 2589, 2594-2595, 120 L.Ed.2d 379 (1992), even if that will reverse the longstanding practice under the statute and the rule, see Metropolitan Stevedore Co. v. Rambo, 515 U.S. 291, 115 S.Ct. 2144, 132 L.Ed.2d 226 (1995). Pp. ___-___.

(b) None of Milberg's additional arguments based on the statute's language and legislative history can unsettle §1407's straightforward language imposing the Panel's responsibility to remand, which bars recognizing any self-assignment power in a transferee court and consequently entails the invalidity of the Panel's Rule 14(b). Pp. ___-___.

(c) Milberg errs in arguing that a remedy for Lexecon can be omitted under the harmless error doctrine. That §1407's strict remand requirement creates an interest too substantial to be left without a remedy is attested by a congressional judgment that no discretion is to be left to a court faced with an objection to a statutory violation. The §1407 mandate would lose all meaning if a party who continuously objected to an uncorrected categorical violation of the mandate could obtain no relief at the end of the day. Caterpillar Inc. v. Lewis, 519 U.S. ----, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996), distinguished. Pp. ___-___.

102 F.3d 1524, reversed and remanded.

SOUTER, J., delivered the opinion of the Court, which was unanimous except insofar as SCALIA, J., did not join Part II-C.

Michael K. Kellogg, for Petitioners.

Jerold S. Solovy, Chicago, IL, for respondents.

Justice SOUTER delivered the opinion of the Court. *

28 U.S.C. §1407(a) authorizes the Judicial Panel on Multidistrict Litigation to transfer civil actions with common issues of fact "to any district for coordinated or consolidated pretrial proceedings,'' but imposes a duty on the Panel to remand any such action to the original district "at or before the conclusion of such pretrial proceedings.'' Ibid. The issue here is whether a district court conducting such "pretrial proceedings'' may invoke §1404(a) to assign a transferred case to itself for trial. We hold it has no such authority.

I

In 1992, petitioners, Lexecon Inc., a law and economics consulting firm, and one of its principals (collectively, Lexecon), brought this diversity action in the Northern District of Illinois against respondents, the law firms of Milberg Weiss Bershad Hynes & Lerach (Milberg) and Cotchett, Illston & Pitre (Cotchett), claiming malicious prosecution, abuse of process, tortious interference, commercial disparagement and defamation. The suit arose out of the firms' conduct as counsel in a prior class action brought against Charles Keating and the American Continental Corporation for violations of the securities and racketeering laws. Lexecon also was a defendant, charged with giving federal and state banking regulators inaccurate and misleading reports about the financial condition of the American Continental Corporation and its subsidiary Lincoln Savings and Loan. Along with other actions arising out of the failure of Lincoln Savings, the case against Lexecon was transferred under §1407(a) for pretrial proceedings before Judge Bilby in the District of Arizona, where the matters so consolidated were known as the Lincoln Savings litigation. Before those proceedings were over, the class action plaintiffs and Lexecon reached what they termed a "resolution,'' under which the claims against Lexecon were dismissed in August of 1992.

Lexecon then filed this case in the Northern District of Illinois charging that the prior class action terminated in its favor when the respondent law firms' clients voluntarily dismissed their claims against Lexecon as meritless, amounting to nothing more, according to Lexecon, than a vendetta. When these allegations came to the attention of Judge Bilby, he issued an order stating his understanding of the terms of the resolution agreement between Lexecon and the class action plaintiffs. 102 F.3d 1524, 1529, and n. 2 (C.A.9 1996). Judge Bilby's characterization of the agreement being markedly at odds with the allegations in the instant action, Lexecon appealed his order to the Ninth Circuit.

Milberg joined by Cotchett then filed a motion under §1407(a) with the Judicial Panel on Multidistrict Litigation seeking transfer of this case to Judge Bilby for consolidation with the Lincoln Savings litigation. Although the judge entered a recusal because of the order he had taken it upon himself to issue, the law firms nonetheless renewed their motion for a §1407(a) transfer.

The Panel ordered a transfer in early June of 1993 and assigned the case to Judge Roll, noting that Lexecon's claims "share questions of fact with an as yet unapproved settlement involving Touche Ross, Lexecon, Inc. and the investor plaintiffs in the Lincoln Savings investor class actions in MDL-834.'' App. 18. The Panel observed that "i) a massive document depository is located in the District of Arizona and ii) the Ninth Circuit has before it an appeal of an order [describing the terms of Lexecon's dismissal from the Lincoln Savings litigation] in MDL-834 which may be relevant to the Lexecon claims.'' Ibid. Prior to any dispositive action on Lexecon's instant claims in the District of Arizona, the Ninth Circuit appeal mentioned by the Panel was dismissed, and the document depository was closed down.

In November 1993, Judge Roll dismissed Lexecon's state law malicious prosecution and abuse of process claims, applying a "heightened pleading standard,'' 845 F.Supp. 1377, 1383 (D.Ariz.1993). Although the law firms then moved for summary judgment on the claims remaining, the judge deferred action pending completion of discovery, during which time the remaining parties to the Lincoln Savings litigation reached a final settlement, on which judgment was entered in March 1994.

In August 1994, Lexecon moved that the district court refer the case back to the Panel for remand to the Northern District of Illinois, thus heeding the point of Multidistrict Litigation Rule 14(d), which provides that " [t]he Panel is reluctant to order remand absent a suggestion of remand from the transferee...

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